S Corp Tax Savings Calculator
Your business
The comparison
How to use the S corp savings calculator
- Enter net profit — business income after expenses, before paying yourself.
- Set a reasonable salary — what you'd pay someone to do your job. This is an IRS requirement, not a dial to zero.
- Count the real S corp overhead — payroll service (~\$500–1,000), a separate 1120-S return (~\$800–1,500), state franchise fees.
- Judge the net line — under ~\$1,500/year of net saving, the paperwork isn't worth it yet.
How the S corp election saves payroll tax
A sole proprietor pays 15.3% self-employment tax on essentially all profit. An S corp owner splits profit into salary (payroll-taxed) and distributions (not). On $120k profit with a $65k salary, roughly $55k of distributions escapes the 15.3% - about $7,800 gross, $5,800 net of the added accounting. The election's entire value lives in that split, and this calculator prices it with your numbers.
"Reasonable salary" is the whole ballgame
The IRS requires salary matching what your role commands on the market - a $120k consultant paying themselves $20k is the textbook audit profile, and reclassification comes with back taxes and penalties. Defensible anchors: industry salary surveys, what you'd pay a replacement, 40–60% of profit as a sanity band. When in doubt, higher salary = lower saving but bulletproof.
When it's not worth it
Below ~$60–80k of consistent profit, admin costs eat the arithmetic. Also weigh: payroll obligations every single month, reduced QBI deduction interplay, state franchise taxes (California's 1.5% S corp tax changes the math), and lower Social Security credits from a lower salary. This is a planning estimate - the decision deserves a CPA hour.
Why the wage base bends the savings curve
The 12.4% Social Security portion of SE tax stops at the wage base this calculator uses ($176,100). Above it, both a sole proprietor and an S corp owner pay only the 2.9% Medicare piece on the marginal dollar. That means the S corp advantage is proportionally largest in the $80k–$170k profit band, where splitting off distributions dodges the full 12.4%. Push profit and salary well past the wage base and the marginal saving on additional distributions shrinks to just the 2.9% Medicare rate, plus the 0.9% Additional Medicare Tax on wages over $200k single / $250k MFJ, which S corp salary doesn't escape either. Run the numbers again after a big revenue year: the percentage saved on profit above the cap is smaller than it was on the first $176k.
The QBI deduction quietly claws some of it back
Section 199A gives pass-through owners a 20% deduction on qualified business income (QBI), but salary paid to yourself isn't QBI, it's W-2 wages, and it reduces the QBI base dollar for dollar. On the $120k profit / $65k salary example used above, QBI drops from $120k (sole prop) to roughly $55k (S corp profit net of salary), cutting the 20% deduction from about $24k to $11k, a swing of roughly $13k in deduction that's worth several thousand dollars in income tax depending on your bracket. This is a real offset against the payroll-tax saving, not a footnote, and it's part of why maximizing salary to "play it safe" on reasonable-comp costs more than the payroll math alone suggests.
Two shareholder costs the split doesn't show
Health insurance: a more-than-2% S corp shareholder's premiums are only deductible if they run through payroll and get added to W-2 Box 1 wages. Pay them straight from the business without that step and the deduction is gone. Retirement contributions: solo 401(k) and SEP limits are calculated off W-2 salary, not total profit or distributions. Set salary too low to squeeze the payroll-tax saving and you also shrink the 25%-of-compensation employer contribution room - a $30k salary caps employer 401(k) contributions near $7,500, while a $65k salary opens it to about $16,250. Chasing the smallest defensible salary can cost more in lost retirement space than it saves in SE tax.
Related tools
Start from your true tax picture in the 1099 tax calculator, deduct the home office first with the home office deduction calculator, and check what you should be paying yourself via the billable hours calculator.
Standards and references
S Corp tax savings math compares self-employment tax (15.3% on 92.35% of net earnings per IRS Schedule SE) to the split between reasonable W-2 salary (subject to FICA) and distributions (not subject to SE tax). Reasonable-compensation guidance follows IRS Fact Sheet 2008-25. The Section 199A QBI deduction rules come from Internal Revenue Code Section 199A and the Treasury Regulations at 1.199A-1 through 1.199A-6.
Frequently Asked Questions
How much does an S corp save in taxes?
Roughly 15.3% of the profit you take as distributions instead of salary, minus $1,500–$3,000 of added admin. On $120k profit with a $65k salary: ~$5,000–6,000/year net.
What is a reasonable S corp salary?
Market rate for your actual role — salary surveys and replacement cost are the IRS-defensible anchors. 40–60% of profit is a common sanity band, not a rule.
At what income is an S corp worth it?
Typically $60–80k+ of consistent net profit. Below that, payroll and tax-prep overhead consume the saving.
Does the S election change my income tax?
No — all profit still flows to your 1040. The saving is purely on the 15.3% payroll/SE tax layer, partially offset by QBI interactions. Confirm specifics with a CPA.